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April 10, 2013

Fed Minutes Show Eagerness to Slow Bond Buys

Minutes were inadvertently sent to Congress early

Fed Chairman Ben Bernanke after an FOMC meeting. (Photo: AP)

WASHINGTON (AP) — A majority of Federal Reserve policymakers want to continue extraordinary bond purchases to help boost the economy at least through the middle of the year, according to minutes from the Fed's last meeting released Wednesday.

But many members indicated they want to slow and eventually end the program soon after that, as long as the job market and economy show sustained improvement. The Fed's purchases of about $85 billion a month in Treasury and mortgage bonds are intended to lower long-term interest rates and support more borrowing and spending.

The minutes of the Fed's March 19-20 meeting were released at 9 a.m. EDT — five hours earlier than planned — after the Fed inadvertently sent them a day earlier to congressional staffers and lobbyists.

"One gets the sense that many Fed policymakers are anxious to start paring back the size of the ... purchases as soon as the data allow," Dana Saporta, an economist at Credit Suisse, said in a note to clients.

Still, a weak employment report released Friday is likely to make policymakers even more supportive of keeping the measures in place for the foreseeable future.

The report showed employers added just 88,000 net jobs last month. That was the fewest in nine months and much lower than the average of 220,000 jobs a month created from November through February.

The unemployment rate dropped to a four-year low of 7.6 percent last month. However, the rate fell only because more people stopped looking for work and were no longer counted as unemployed.

In its statement after the last meeting, the Fed said the economy had strengthened but still needed its efforts to help lower high unemployment. In addition to continuing the bond purchases, the Fed stuck by its plan to keep short-term interest rates at record lows at least until unemployment falls to 6.5%.

The minutes indicated that many of the Fed's members want to see sustained improvement in the job market — from a wide range of economic indicators — before making any decision to reduce the pace of purchases.

Stocks rose sharply after the minutes were released. The Standard & Poor's 500 index rose to 1,585 in late-morning trading — above its all-time high of 1,576.09 set in October 2007. The Dow Jones industrial average climbed 130 points to 14,804.

The early release of the minutes led the Fed to notify financial regulators. A Fed spokesman said that officials have contacted the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Fed has also asked its inspector general to investigate its procedures for releasing the minutes.

"At this time we do not know if there was any trading related to the early distribution," the spokesman said. "Every indication at this time is that the early distribution of the minutes was entirely accidental."

John Nester, a spokesman for the SEC, declined to comment on the release of the minutes, beyond saying that the Fed contacted the SEC staff.

The report showed a wide array of opinions and criteria for when to end the bond purchases, which have boosted the Fed's balance sheet to $3.2 trillion.

A few members want to end "relatively soon" the bond-purchase program, which is intended to lower long-term interest rates and encourage more borrowing and spending.

Those members say the costs likely outweigh the benefits. A few others saw the risks as increasing quickly and said the purchases would likely need to be reduced "before long."

Many members said an improved job market could lead them to slow purchases within a few months, and a few said economic conditions would likely justify continuing the program until late this year.

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